keeping up with tax – asset and wealth management

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Keeping up with Tax – Asset and Wealth Management

April 2020

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Italy – No access to domestic tax exemptions for transparent funds

UK - Hybrids and other mismatches consultation paper

UK - Finance Bill and HMRC technical notes/consultation papers

UK - HMRC’s post-Brexit plans for non-UK funds

Sweden –Supreme Court Decision on withholding tax on dividends suffered by non-UCITS funds

Global –Automatic exchange of Information reporting update in light of COVID-19

EU and UK – A round of VAT updates

Introduction Contacts

Introduction

Welcome to our April edition of Keeping up with Tax –Asset and Wealth Management. The last month has undoubtedly been an extraordinary and challenging one for all of us, and clearly our overriding concern has been, and continues to be, the safety and wellbeing of everyone as we adjust to what for many of us will be entirely new ways of working. This in itself is a big challenge, but layered on top of this is the fact that many asset and wealth managers (‘AWMs’) will be, like all businesses, trying to understand what the current, fast-moving situation means for their operations and how they can best mitigate any business risks which arise directly or indirectly as a result of the outbreak and the restrictions on movement being imposed in a number of jurisdictions.

If you haven’t already, our dedicated firmwide COVID-19 website is worth a visit if you’re looking for the latest updates on any key concerns you might have. We also had thousands of people view our live webcast in March where a panel of advisors discussed which areas you should consider as part of your planning and response strategies. You can view a recording of the webcast here.

Clearly, navigating the tax landscape is going to be a big challenge over the next few months for AWMs as they try to understand how the restrictions on global mobility will impact their international tax position. Among other things, permanent establishment risk from a corporate tax perspective, and tax residency risk from a personal tax perspective, will need to be front of mind where work is being carried out from locations where it would not usually be. While there will be reliefs available, particularly challenging in this regard will be the wide range of different measures and reliefs being introduced by different jurisdictions, and AWMs will need to gain as much clarity as they can as soon as possible regarding what reliefs are being put in place by relevant jurisdictions and whether they will be able to access them in their particular circumstances. This understanding will help in making more effective and targeted operational decisions over the coming months. You can use the tool on our website to get the latest updates on the measures being introduced by any jurisdiction across all areas of tax.

Within the UK, you will no doubt be aware that a raft of measures have been introduced by the Government in an attempt to offset the impact to cash flow. These include, among other things, VAT deferrals and employer grants to pay salaries and refund statutory sick pay. We are aware that, while the focus has been on cash flow measures, many will still have underlying concerns about their ability to meet their tax reporting obligations under the current circumstances, particularly with regard EU MDR which is still due to kick in later this year. Industry bodies are already engaging with HMRC and EU tax authorities on matters such as these.

Tax matters aside, there will be a number of other issues to which AWMs will need to turn their attention as a matter of priority, particularly on the topic of global mobility and the potential for employees to find themselves stranded in a jurisdiction where they and their employers are not resident. Immigration restrictions, including any reliefs which might be available, should be scrutinised carefully to ensure compliance with local laws. Equally, it will be of vital importance for AWMs to make sure that they are not carrying out regulated activities in jurisdictions where they do not have a regulatory licence.

While we know that COVID-19 will remain at the forefront of everyone’s minds in the short term at least, we have a packed agenda of other items to cover in this month’s edition as well. Our articles this month include the following:

• Italy – No access to domestic tax exemptions for transparent funds

• UK – Hybrids and other mismatches consultation paper

• UK - Finance Bill and HMRC technical notes/consultation papers

• UK – HMRC’s post-Brexit plans for non-UK funds

• Sweden – Supreme Court Decision on withholding tax on dividends suffered by non-UCITS funds

• Global – Automatic exchange of Information reporting update in light of COVID-19

• EU and UK – A round of VAT updates

Please do continue to reach out to your usual PwC contacts if you would like to discuss any of the above, and please do share your feedback with us if there is a particular topic or issue you would like us to cover.

Kind regards,

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Introduction

James StewartUK Mainstream Funds Tax Leader

M: +44 (0) 7469 033107E: [email protected]











Recently some custodians have reached out to Asset and Wealth Managers who were managing tax transparent funds and who were applying domestic withholding tax (‘WHT’) reliefs to those funds on their Italian investments. PwC’s view is that tax transparent funds should not in principle apply domestic tax reliefs, as:

• Generally, all foreign entities (including funds and partnerships) should be considered opaque/non tax-transparent entities from an Italian domestic perspective (i.e., Italy should look at the fund/partnership and not the underlying investors).

• Participants in a transparent entity may get treaty but not domestic benefits;

• Participants in a transparent entity should not get any other benefits, such as the Pension Fund 11% WHT rate or the 1.2% EU corporate tax rate due to underlying pension fund or corporate investors.

• As such, the only way a fund could obtain the 11% or the 1.2% domestic WHT rate is for the fund itself to be considered as a pension fund or a corporate entity.

In the UK this is particularly important for an ACS with underlying pension fund investors and we have worked with some ACSs to analyse the fact patterns and understand whether, under the definition of Italian tax laws, it would be possible to requalify the ACS as a pension fund itself. However, even if the ACS did qualify as a pension fund, UK pension funds will lose entitlement to the 11% from 1/1/2021 (unless Brexit negotiations lead to a new agreement on this).

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Agnes PigassouSenior Manager



Next steps for asset and wealth managers

Where Asset Managers have a transparent fund where the domestic tax rate has been applied, an analysis should be done to understand impact of future reliefs available and potentially

apply for treaty reliefs as well as review the historic position and decide course of action for remediation if needed.

James StewartDirector











UK - Hybrid and other mismatches consultation paper

HMRC released a consultation paper on 19 March 2020 in order to gather evidence and views in relation to three elements of the hybrid mismatch legislation at Part 6A TIOPA 2010. The consultation period runs to 29 May 2020.

Double deduction rules – Section 259ID

This will be of particular interest to US headed groups with UK entities that have made ‘check-the-box’ elections to be treated as disregarded for US tax purposes. HMRC has acknowledged that many taxpayers have concerns regarding the narrow interpretation of ‘investor’ and ‘in direct consequence in section 259ID. In particular for Asset and Wealth Management structures, third party income often arises to entities in the group other than the investor, meaning that the conditions of section 259ID may not be met. HMRC is receptive to exploring the case for change in this area and would like to obtain evidence of which structures are most impacted, the barriers to restructuring these structures, and the extent to which the issue is mitigated by foreign tax credits.

Acting together definition – Section 259ND(7)

The acting together rules are designed to prevent otherwise unconnected parties from working together or being used to circumvent the impact of the hybrid rules. HMRC acknowledges that this section is drafted broadly such that parties between whom there is no contractual relationship may be taken to be acting together. The consultation paper identifies two specific scenarios where this may be the case:

a) Loans subject to inter-creditor agreements or including group-wide behavioural covenants; and

b) Parent company guarantees fettering to some extent the parent’s usual discretion to direct its subsidiary’s actions.

HMRC accepts that in neither of these scenarios would there generally be a level of control of the payer by its counterparty, akin to group membership, that should be taken to give rise to acting together. Accordingly, HMRC would like to gather views on arrangements where it is believed that section 259ND applies disproportionately and seek guidance on modifications to address these concerns.

Exempt investors in hybrid entities

HMRC is willing to consider amending the rules to provide an exemption from counteractions that arise where the hybrid rules attribute the non-taxability of the receipt of a payment to the presence of a hybrid entity even if the investor could have received a payment directly and not been subject to tax. HMRC has identified the following potential solutions, and is receptive to view on these and other proposals:

• A ‘white list’ of entities which would be accepted as qualifying to prevent counteractions;

• A blanket exemption from counteraction for entities which would not be subject to tax on a direct payment, couples with a ‘black list’ of entity types which would not qualify for the exemption; or

• A principles-based definition of the characteristics of an entity that would qualify as not giving rise to counteractions.

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UK – Hybrids and other mismatches consultation paper

Richard Madden Director


Tim HillDirector



The consultation is helpful in outlining a number of areas of the hybrid mismatch legislation which HMRC is revisiting to ensure they do not capture scenarios not intended to be within the scope of the rules.

Asset and wealth managers should consider the detail provided in the consultation and make representations on the specific points raised, or any others about which they have concerns, directly to HMRC, through PwC, or through industry bodies such as the IA, the BVCA or AIMA.










UK - Finance bill and HMRC technical notes/consultation papersFollowing the Spring 2020 Budget on 11 March, on 19 March the Government published the Finance Bill and HMRC published further technical notes and consultation papers. This article contains a summary of the technical notes and consultation papers most relevant to the asset and wealth management industry, as well as the key legislative clarifications included in the Finance Bill.

Finance Bill

Digital services tax

The Finance Bill and guidance released by HMRC provided some further details regarding the implementation of the UK Digital Services Tax (‘DST’). The scope remains very different to other DSTs seen in Europe. Rather than seeking to tax specific revenue streams, the UK DST seeks to identify in-scope activities globally, attribute deemed revenues to them, and then tax the portions that arise “in connection with” interactions with UK users. Only groups with £500 million global in scope revenues will be liable, and the first £25 million of UK in-scope revenues is not taxable.

Crucially, in relation to the Online Financial Marketplace exclusion from the DST, there have been some changes from the previously published draft legislation. The requirement to be trading in financial instruments has been expanded to include the trading of financial instruments, commodities or foreign exchange. However, it is worth noting that trading in crypto currency assets is still expected to be excluded from the exemption (i.e.. it is expected to be within the scope of the UK DST).

Additionally, UK users will be considered to be those resident in the UK, unlike most other DSTs which look to IP addresses or geolocation. Accordingly, it is not possible for businesses to take comfort on their UK DST position from work done for other countries’ DSTs. However, noting the currently defined in scope activities of social media platforms, search engines and online marketplaces, it is not expected that a large portion of asset managers will be impacted by the UK DST.

HMRC technical notes/consultations

Reduction in the lifetime limit for Entrepreneurs’ Relief

Following the announcement in the Budget that the amount of lifetime gains that qualify for Entrepreneurs’ Relief will reduce from £10 million to £1 million, the Government released a technical note providing further details. The technical note explains how the new rules counter “forestalling arrangements”, such as unconditional contracts entered into before Budget day or contractual completion of the disposal after Budget day.

In addition, special rules will apply when shareholders in a company make an election under section 169Q of TCGA 1992 following share reorganisations or share exchanges.

In these cases, the new lifetime limit will apply to gains that result from the making of the election.

Taxation impacts arising from the withdrawal of LIBOR

HMRC has published some draft guidance setting out its view of the potential tax issues which might arise as a result of the withdrawal of LIBOR and aims to provide some clarity for those amending financial instruments which refer to LIBOR. It clarifies that, where parties agree to change the terms of an instrument in response to the withdrawal of LIBOR, HMRC would normally view this as a variation of the existing instrument, and as such the amended contract should be regarded as the same contract and entered into at the same time as the original one. HMRC has identified the following provisions.

• The Disregard Regulations: If references to LIBOR in a hedging instrument are amended at a different time to references to LIBOR in the hedged item, or they are replaced with different rates, the Disregard Regulations can still apply provided the intention to hedge remains.

• Grandfathering: Where a financial instrument benefits from a grandfathered treatment, HMRC would normally expect this treatment to continue where amendments are made in response to benchmark reform.

• Double taxation treaty passport scheme: HMRC would normally expect that changes to an agreement in response to benchmark reform would not amount to a material change and there should therefore be no need to notify HMRC.

• Reporting requirements: Where reporting requirements (such as EU MDR) depend on a new financial instrument being created, HMRC would expect that amendments made in response to benchmark reform should not create a new financial instrument.

• Transfer pricing: Where the arm’s length price of financial instruments is specified by reference to LIBOR, HMRC will normally accept that parties to a contract that references LIBOR would, acting at arm’s length, agree to make changes to the contract to respond to the reform of the benchmark. It would not normally be necessary to reassess whether the terms of the original agreement are arm’s length.

• Clearances: Existing clearances could involve financial instruments that need to be amended to replace references to LIBOR. Businesses will still be able to rely on the certainty given by the clearance, provided that:

‒ the amendment does not affect the economics of the transaction; and

‒ there is nothing significant in the tax analysis of the transaction that would be affected by the amendments.

UK – Finance Bill and HMRC technical notes/consultation papers










UK - Finance bill and HMRC technical notes/consultation papers (cont’d)

R&D tax relief for SMEs

The Government has launched a second consultation on the introduction of a cap on the amount of SME scheme payable tax credit that a business can receive in any one year. The scheme allows companies to claim a tax credit worth up to 14.5% of the R&D element of their losses and receive a cash-flow benefit. At Budget 2018, the Government proposed a ‘PAYE cap’ to address abuse of the scheme, but the introduction of this cap was delayed until 1 April 2021 to allow for further consultation on the protections (as well as a £20,000 threshold below which the cap would not apply) which will be made available to genuine businesses affected by the cap.

The two carve outs proposed in the consultation are as follows:

• Where a claimant company can provide proof that they are actively managing the intellectual property arising from the R&D project, this could provide assurance that a claim for the credit could be uncapped.

• The Government intends to apply a test which allows for a limited proportion of R&D expenditure on subcontracting to, and provision of EPWs by, related parties; the permissibility of a low level of related party subcontracting is being considered by the Government.

A response to the consultation is currently being drafted by PwC, and we encourage asset and wealth managers to get in touch if they have any comments or concerns.

New large business notification when taking a position HMRC is likely to challenge

The Government has released a consultation document seeking views on the proposed new notification requirements for large businesses (turnover above £200m or balance sheet over £2bn) that have adopted an uncertain tax position i.e. where a business believes HMRC may not agree with an interpretation of legislation, case law or guidance. ‘Uncertain tax treatment’ will be defined in the legislation and examples will be provided by HMRC in the guidance, but the consultation indicates that certain aspects of the definition will be drawn from IFRIC23.

It is anticipated that the legislation will be introduced in the 2020-2021 Finance Bill and will apply to returns filed after April 2021. Certain exclusions are expected to apply, such as any treatment disclosable under DOTAS, the DAC 6 rules, or uncertainty which is subject to formal discussion with HMRC.

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The additional clarifications relating to the implementation of the UK DST and HMRC’s proposed treatment of issues arising from the withdrawal of LIBOR will be helpful for asset and wealth managers. They should ensure they understand how the new details could impact their business’ structure and any financial arrangements to which they are a party. With regard to the consultations, asset and wealth managers with particular

concerns about the cap on R&D tax relief for SMEs or about the new large business notification proposals should make representations directly to HMRC or through PwC, or through industry bodies such as the IA, the BVCA or AIMA.

Tunde OgunlesiSenior Manager

M:+44 (0) 7800 541587E: [email protected]

UK – Finance Bill and HMRC technical notes/consultation papers

Tim HillDirector











UK – HMRC’s post-Brexit plans for non-UK funds

Background

In March, HM Treasury (‘HMT’) consulted on the ‘Overseas’ fund regime (i.e. non-UK fund), setting out proposals for a new regime intended to make it easier for non-UK retail and money market (‘MMFs’) funds to be sold into the UK from January 2021.

The new regime, which will supersede the UK Temporary Permissions Regime, will be based on the principle of jurisdictional regulatory equivalence. Where individual funds are not eligible to be recognised through the overseas fund regime because they are domiciled in a country not covered by an equivalence determination, they may still be eligible for marketing in the UK under the existing section 272 of the Financial Services Markets Act (AIFs or other non-UCITS funds).

The consultation can be found here and closes on 11 May 2020.

What does this mean for asset managers?

Non-UK retail and money market funds would be given permission to market into the UK, provided that the country in which the fund is domiciled has a regulatory regime that provides at least equivalent levels of investor protection to that offered by UK authorised funds.

To qualify for equivalence, there would need to be appropriate cooperation arrangements between the FCA and the relevant regulator in the fund’s country of domicile.

Retail funds included in the equivalence decision may face additional requirements as a condition of UK recognition.

Non-retail money market funds with an equivalence determination will need to submit a notification to the FCA under the National Private Placement Regime.

HMT is also proposing to amend the section 272 process. This provides a mechanism for individual non-EEA funds to be recognised by the FCA where that fund meets several tests in legislation and affords sufficient protection to investors.

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Asset and wealth managers seeking to market non-UK retail and money market funds into the UK from 1 January 2021 will have planned on the basis that those funds may no longer be deemed equivalent. Now, if the proposals are introduced, non-UK funds in jurisdictions that are deemed equivalent may be able to rely on these equivalence measures, if the proposals are introduced. For other funds, the solution might be to establish mirror funds in the UK or become familiar with the section 272 process and the proposed amendments.

Asset and wealth managers should also note the HMT’s request for input on aspects of the UK framework that relate to the marketing of funds to UK retail investors, and their relevance within the Overseas fund regime. This includes the arrangements for alternative dispute resolution, financial compensation, disclosure, and financial promotions. The deadline to provide input is 11 May 2020.

Andrew StrangeDirector


UK – HMRC’s post-Brexit plans for non-UK funds












Sweden – Supreme Court Decision on withholding tax on dividends suffered by non-UCITS funds

Background and case law developments to date

The Fokus Bank reclaim landscape for non-UCITS funds with legal personality has been uncertain lately in Sweden.

Following three positive decisions in 2014 at the Swedish Administrative Court of Appeal (‘ACA’), US mutual funds regulated under the Investment Company Act of 1940 (‘RICs’) had been able to obtain refunds of withholding tax (‘WHT’) on dividend payments. However, following judgements from the Swedish Supreme Administrative Court (‘SAC’) from 2016 and 2018 concerning income tax suffered by a non-UCITS Luxembourg SICAV, the Swedish Tax Agency (‘STA’) has been rejecting refund applications for all non-UCITS, non-contractual funds. A number of claimants have litigated following these rejections.

The key of the debate is to clarify whether the legal form of an entity should be taken into consideration when assessing comparability of situations between the resident and the non-resident fund.

The Franklin Mutual SAC case

Franklin Mutual, a U.S. trust fund had applied for a refund of withholding tax paid during the years of 2006-2008, claiming that it had suffered discriminatory treatment compared to an equivalent Swedish fund, contrary to the EU's free movement of capital principles.

The STA, the Administrative Court and thereafter the ACA denied the application, claiming that there was no discrimination as the fund had legal personality which meant that it was not comparable to a Swedish investment fund.

This decision was appealed to the SAC and on the 11th February 2020, came to the conclusion that the only fact that a fund has legal personality does not mean it cannot be comparable to a Swedish investment fund. The ACA will now be required to rule the case again, with the SAC guidance.

This is a positive development for non-UCITS funds with legal personality (such as US RICs or non-UCITS SICAVs) to be exempt from Swedish withholding tax, especially given the precedent positive case law at the ACA.

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Simon PearceManager

M: +44 (0) 7730 599438 E: [email protected]

Teresa Owusu-AdjeiPartner




We expect to see a verdict from the ACA before the end of the year which should provide more clarity, although the exact timeframe for a decision is currently uncertain. As a result of this decision, non-UCITS should look to move forward with filing

reclaims in Sweden. The limitation period for filing a reclaim in Sweden is five years (i.e. withholding tax suffered in 2015 could be included in a claim filing, provided the claim was filed by 31 December 2020).










Global – Automatic exchange of Information reporting update in light of COVID-19

Background

As we enter the annual reporting season for both the Foreign Account Tax Compliance Act (‘FATCA’) and Common Reporting Standard (‘CRS’) it is not clear what impact COVID-19 will have.

The Internal Revenue Service (‘IRS’) has announced that the filing deadline for the FATCA Report (Form 8966) will be extended from March 31st to July 15th without the need to apply for an extension. This impacts those Financial Institutions that are Reporting Model 2 Foreign Financial Institutions (‘FFI’) or Participating FFIs.

The Cayman authorities also announced on March 2nd that this year's reporting deadline would be 18 September. The Cayman change of date is in relation to the implementation of a new reporting portal and not related to the current situation regarding COVID-19.

We wait to see how other tax authorities react to the current situation. As each jurisdiction has different deadlines for reporting there will be no blanket extension and each jurisdiction will need to be monitored for updates. Experience suggests that announcements of this type are often made very close to the actual reporting deadline and hopefully tax authorities will give plenty of notice this reporting season given these unprecedented times.

In the meantime as organisations have been forced to adopt new and more flexible ways of working, it will be important to understand that the current reporting process will continue to function as designed in this new working environment and that the key steps in collecting, collating and validating the data needed for reporting can be still be undertaken in a timely manner to meet the current reporting deadlines.

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Asset and wealth managers should refresh their understanding of current reporting deadlines and be preparing to report in accordance with those dates. A review of the overall reporting process whether done in house or outsourced to a third party should be undertaken to understand that the key steps to be followed will continue to function given the new working arrangements adopted in response to COVID-19.

Asset and wealth managers should assess which contingency plans are needed in the event that current capabilities are impacted by COVID-19.

Paul BeesonDirector


Reporting dates for selected jurisdictions

Jurisdiction Reporting date

United Kingdom 31 May

Singapore 31 May

Hong Kong (CRS) 1 June

Ireland 30 June

Luxembourg 30 June

Jersey 30 June

Guernsey 30 June

Switzerland (CRS) 30 June

US via IDES for FATCA (e.g. Switzerland, HK)

15 July1

Cayman 18 September2

1following IRS extension announced 25 March 2020.

2following Cayman announcement on 2 March 2020.


Neil HigginsSenior Manager












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2. Deferral of VAT payments due to UK COVID-19 response

On 20th March the Chancellor announced that businesses with a VAT payment falling due between 20 March and 30 June would be permitted to defer this payment. This is to support businesses with liquidity in acknowledgement of the difficulties many businesses are facing as a consequence of the Coronavirus.

Further clarifications have since been issued by the government in relation to these measures. Payments can be deferred until 31 March 2021, and the mechanism for paying HMRC will be confirmed in due course. Those availing themselves of this deferral should file VAT returns in accordance with the normal schedule, but do not need to pay HMRC. There is no application nor notification required for this.

Deferral is available for VAT return payments and also for any payments on account due in this period. No interest will be levied by HMRC upon the deferred amounts.

These measures are unprecedented and demonstrate the UK Government’s commitment to tackling the economic difficulty many businesses will face. All businesses that have, or will have, a payment (or payments) of VAT falling due in the period 20 March 2020 to 30 June 2020 are encouraged to fully consider whether this deferral could assist their businesses in these uncertain economic conditions.

Finally, we note that HMRC has announced on 30 March 2020 that the deadline for the implementation of digital links per Making Tax Digital has been delayed in acknowledgement again of the difficult position many businesses are in. These requirements will now come into effect for VAT periods commencing on or after 1 April 2021.

1. BlackRock - Advocate General Opinion

The Court of Justice of the European union (‘CJEU’) published the Advocate General’s (‘AG’) Opinion (‘AGO’) in the BlackRock case earlier in March. In summary, the AG concluded that the provision of services relating to the BlackRock’s Aladdin system could not benefit from VAT exemption, as the services were used for both special investment funds (‘SIFs’) and non-SIFs.

The question at issue in the BlackRock case was whetherthe provision of services relating to its Aladdin system could qualify for VAT exemption to the extent that these services relate to BlackRock’s management of SIFs.

The reasoning adopted by the AG was that there was a single indivisible economic supply, which was offered as a complete package. Whilst there was prior European case law (such as Talacre, Commission v France and Commission v Luxembourg) that did allow for the apportionment of certain services, the AG felt that the fact patterns in these could be distinguished from the BlackRockcase. These cases were, in the AG’s view, exceptional, and did not set out general principles nor create a precedent in the present case.

The AG expressed reservations with the proposal that the VAT exemption should be apportioned based on the value of the assets under management for SIFs and non-SIFs respectively. Moreover, he felt that such a mechanism would undermine the nature of the VAT system to make it unworkable.

He did concede though it would be possible to confer the VAT exemption where either: a) the recipient of the service managed only SIFs, or b) the supplier of the services could provide detailed data enabling the tax authority to identify precisely and objectively the services provided specifically for a SIF.

There appear to be a number of unresolved points from the AGO’s reasoning, in particular in his rejection of prior European jurisprudence, and we wait to hear if the CJEU will reach the same conclusion.

The AGO will disappoint many investment managers, as if this approach is endorsed by the CJEU, this could lead to investment managers incurring irrecoverable VAT both upon Aladdin costs, and also upon other costs that are used by them towards the management of SIF and non-SIFs (such as investment research costs).


Should the CJEU follow the approach taken by the AG, many asset and wealth managers may need to consider their procurement models where purchasing services which relate to both SIF and non-SIFs.


Asset and wealth manager who are taking advantage of the deferral should file VAT returns in accordance with the normal schedule, but do not need to pay HMRC. There is no application nor notification required for this.










EU and UK – A round of VAT updates (cont’d)

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3. HMRC – broadening of the VAT ‘management’ exemption - 1 April 2020

HMRC has confirmed that with effect from 1 April 2020, the VAT management exemption will be broadened to include the management of closed-ended collective investment undertakings that invest in assets other than securities, and also the management of “qualifying” pension funds.

This change implements the CJEU court decisions in Fiscale Eenheid X, C-595/13 (‘Fiscale Eenheid’) and ATP PensionService A/S, C-464/12 (‘ATP’). In summary, Fiscale Eenheid confirmed that funds investing in real estate could qualify as special investment funds, and therefore the management of such funds could be VAT exempt. In ATP, the CJEU considered that certain types of pension schemes could also qualify as special investment funds.

On the broadened of the management of closed-ended collective investment undertakings, it is expected that the management of Real Estate Investment Trusts (‘REITs’) will be one of the key areas impacted. However, the management of other funds that also invest in real estate may also be affected, for example Investment Trust Companies (‘ITCs’) that also invest in real estate.

With regard to the management of certain pension funds post 1 April 2020, the definition of a “qualifying” pension fund is drawn by reference to the conditions referenced in ATP and applies to pension funds that are established in the United Kingdom or in an EU Member State. In practice, however, this change will mainly impact the management to UK defined contribution (‘DC’) pension funds.


Asset and wealth managers who invest in REITS and other impacted funds need to make the required system and invoicing changes to be compliant with the new rules as of 1 April 2020. Further we also recommend that asset and wealth managers look to submit ‘top-up’ VAT claims for all VAT periods

up to and including 31 March 2020 so as to ensure they protect their respective positions and those of their clients. Finally asset wealth managers and DC pension fund Boards should take appropriate VAT advice, as this could be a potentially complex area and assistance may be required in any negotiations and/or resolution with HMRC.

Investment managers have, to date, experienced some resistance from HMRC in trying to agree that a particular pension fund is a DC pension scheme, and therefore that the management thereof could potentially qualify for VAT exemption. It is therefore hoped that this new statutory amendment will reduce the number of instances in which HMRC refuses to agree that the VAT exemption is applicable for DC pension schemes.

For those investment managers that currently provide services to pension funds located in EU Member States, correspondence and research will need to be carried out to verify whether those funds are “qualifying pension funds” per the new provisions. This may not be straightforward, particularly given the nuances to the forms of pension funds available across the EU. Nevertheless, HMRC will expect managers to review this on a client-by-client basis and also retain records of the enquiries that they have made in this regard.

Daniel EvansDirector


Neil ChalmersSenior Manager











Contacts

For additional information please contact one of our partners or the editorial team

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Editorial team

Fiona CarpenterPartner


Lachlan RoosPartner


Elizabeth StonePartner


Agnes PigassouSenior Manager


Kit DicksonPartner


Anna Denton Associate


Hazell HallamPartner


Robert MellorPartner


Teresa Owusu-AdjeiPartner


Tom PetridesAssociate


Jon PagePartner




Contacts


This document has been prepared only for [xxxx] and solely for the purpose and on the terms agreed with [xxxx]. We accept no liability (including for negligence) to anyone else in connection with this document, and it may not be provided to anyone else.

© 2020 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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